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Further rate hikes to push more borrowers into mortgage stress

By Hanan DervisevicMarket OverviewSep 23, 2022 13:03
au.investing.com/analysis/further-rate-hikes-to-push-more-borrowers-into-mortgage-stress-200526584
Further rate hikes to push more borrowers into mortgage stress
By Hanan Dervisevic   |  Sep 23, 2022 13:03
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The RBA has increased the cash rate by 225 basis points since May, leaving an estimated 854,000 mortgage holders in mortgage stress.

According to Roy Morgan Research, approximately 19.4% of Australian borrowers were at risk of mortgage stress in the three months to July 2022.

This period included the first three interest rate increases from the RBA - the cash rate target hit 1.35% in early July.

Despite the high number of borrowers that are considered at risk of mortgage stress, this number is below the high reached during the global financial crisis in 2009 (1.45 million mortgage holders).

Approximately 542,000 mortgage holders are considered extremely at risk of mortgage stress in the three months to July 2022.

This is below the average of the last decade by 13.9%.

The research shows mortgage stress is set to increase to nearly one-in-four borrowers by November as the RBA is set to hike the cash rate further in the coming months.

Economists tip it to go as high as 3.60% in early 2023.

If the cash rate increases by another 50 basis points in both October and November, Roy Morgan research has modelled an approximate 1.1 million borrowers would be classified as at risk of mortgage stress.

This is an increase of 246,000 on July 2022 and would be the most mortgage holders classified as at risk since July 2013.

Roy Morgan CEO Michele Levine said although rising interest rates are one contributing factor for rising mortgage stress, it’s not the only one to consider.

“It’s important to consider that interest rates are but one variable that determines whether a mortgage holder is considered at risk,” Ms Levine said.

“The variable that has the largest impact on whether a borrower falls into the at risk category is related to household income – which is directly related to employment.

“These figures suggest that as long as employment levels remain strong the number of mortgage holders considered at risk will not increase to anywhere near the levels experienced during the GFC in 2007-2009 when well over 30% of mortgage holders were considered at risk.”


With many fixed rate home loans set to expire in 2023, AMP senior economist Diana Mousina said this is one reason borrowers are vulnerable to higher interest rates.

“The big bank mortgage books suggest that the largest share of fixed-rate loans expire in the second half of 2023 and this means that households will roll onto a variable or fixed mortgage rate that could be 2-3 times their current fixed rate which is a big increase in debt servicing costs,” Ms Mousina said.

“On the RBA’s own estimates, around 38% of households with a mortgage will see a lift in monthly repayments of 40% or more if interest rates rise by 300 basis points [the RBA has so far increased interest rate by 225 basis points], which is around 1.3 million households.

“This is a very large increase in housing costs for a good share of the population and is too large to be compensated by a rise in wages growth.”

"Further rate hikes to push more borrowers into mortgage stress" was orginally published on Savings.com.au and was republished with permission.

Further rate hikes to push more borrowers into mortgage stress
 

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Further rate hikes to push more borrowers into mortgage stress

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